The Indian rupee sank to a fresh all-time low against the US dollar, dropping 51 paise to 77.78 against the US currency as investors look for safer assets, amid spiraling inflation in the country.
Indias Wholesale Price Index hit a fresh year-on-year high of 15.1 per cent in April, fuelled by surging prices of vegetables, fruits, milk and fuel, government official data showed Tuesday.
The latest numbers pile pressure on the central bank to hike interest rates further. The Reserve Bank of India has increased its repo rate, by 40 basis points at an emergency meeting earlier this month.
While the rupee stood ground at 77.63 to the dollar due to timely RBI intervention, analysts say the rupee could further fall to as low as Rs 80 to the dollar in coming weeks.
Much of the inflationary pressure comes from supply constraints caused by Russias invasion of Ukraine, rising global fuel prices and the pandemic rather than excessive consumer demand, so increasing interest rates may do little more than weaken demand, after the ravages of the pandemic.
Fears of a global recession again have been fanned by Chinese data showing a sharp slowdown in manufacturing activity.
Add to this, the unrelenting heatwave for the last two months that has pushed up prices of perishables like fruits, vegetables and milk, the Wholesale Price Index showed.
Fuel prices rose a massive 38.66 per cent while prices of manufactured products have climbed 10.85 per cent. S
Analysts expect the central bank to raise the repo rate by at least further 35 basis points in August.
‘The important challenge facing the central bank remains whether inflation will tread down meaningfully because of such rate hikes, if war-related disruptions, do not subside quickly’ experts at the SBI opined.